Americans with credit card debt face a double whammy.
First, there is inflation. Prices for a broad basket of consumer goods rose 8.3% from the same period last year, a figure that includes even larger increases in the cost of food, housing, gasoline and medical care.
At the same time, credit card prices are on the rise. In an effort to control inflation, the Federal Reserve undertook a series of hikes in short-term interest rates, which pushed up credit card rates. Run a balance on your card and you’ll have to pay it off at a rate of 18.1%, on average, according to Bankrate – the highest rate since 1996.
“It’s all connected,” says Ted Rossman, senior industry analyst at Bankrate. “Balances are going up because of inflation and because of some good things too, like raging demand for travel. Add in the highest interest rate in two decades and it’s a tough combination.”
The result: Americans now have a near-record amount of credit card debt, with the average household ahead of $8,942, according to recent data from WalletHub.
For residents of some states, the average is even higher. Here are the 10 states with the highest average household credit card debt, according to WalletHub.
- Alaska: $11,277
- Hawaii: $10,190
- Virginia: $9,176
- Maryland: $9,120
- Connecticut: $9,088
- New Jersey: $8,956
- Colorado: $8,906
- Georgia: $8,699
- Texas: $8,681
- Utah: $8,527
Alaska also leads the way in the largest average increase in household debt in the second quarter of this year, with a rise of $770. Hawai’i ($696), Virginia ($627), Maryland ($623) and Connecticut ($621) round out the top five.
Strategies for Paying Off Credit Card Debt
If you have a balance on your credit card, it would be wise to make it a top priority, says Rossman. “If you’re close to the 18% average rate, consider every dollar you spend on that debt a risk-free, tax-free guaranteed 18% return on investment,” he says.
The easiest way to find extra money to spend on your debt is to spend less or earn more. But that’s easier said than done.
Beyond that, consider these three strategies to help ease the burden of paying off high-interest debt at a time when expenses and rates are on the rise.
1. Sign up for a credit card with balance transfer
Once you transfer your credit card balance to one of these cards, you will owe no interest for at least six months and up to 21 months. You can then use this 0% APR period to pay off your debt without interest charges.
The key to this strategy is to make no purchases with the new card and just focus on paying off debt, Rossman says. “Divide what you owe by the number of interest-free months,” he explains. “You could get out of debt in 21 months without interest, just having to pay the initial transfer fee.”
2. Get a low rate personal loan
Depending on your credit score, you may be able to consolidate your debt into a personal loan, with banks currently offering interest rates as low as 5.73%. It’s no walk in the park, but it’s a far cry from the average 18% you’ll pay to carry a balance on your credit card.
3. Use a credit counseling service
A nonprofit credit counseling agency can help you negotiate a lower rate on your debts and offer you a payment plan that you can more easily afford. “If you’re over $5,000 in debt, it can be very beneficial,” says Rossman.
However, don’t confuse these services with debt settlement or debt consolidation companies, which often operate for profit and employ practices that can hurt your credit score. You can find a reputable credit counseling agency through the National Foundation for Credit Counseling agency finder.
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